How to find the best CD rates

If you’ve just stumbled upon my happy home on the Internet, you may be wondering why I spend so much time writing about CD rates. After all, today’s CD market features some pretty subpar earnings potential. However, I’m a firm believer that investing in CDs can still make for a sound financial strategy, depending on what you’re looking to accomplish. If you are looking for an investment with essentially non-existent risk that still earns a return, use these three tips to find the best CD rates in 2012.

Look outside your local area

Sure, keeping your checking and savings accounts at a bank with a branch around the corner from your house can be helpful, but CDs are entirely different animals than these liquid accounts. Because you won’t be withdrawing money on a regular basis, you can search for certificates of deposit at online banks and banks far from home in order to find the best rates available.

Time is money

Here’s a simple rule of thumb: the longer the maturity, the higher the interest rate. However, I’ve mentioned this before, and I’ll say it once again: 5-year CDs aren’t the ideal place to stash your money right now if you’re a first-time CD investor. Instead, look at 2 – 3-year maturities at maximum.

Get penalized

I know this sounds like odd advice, but it can actually pay off to pay the early withdrawal penalty on long-term CDs. You’ll need to do your research, though. Make sure to estimate how much money you’ll need to forfeit in order to take your cash out early to reinvest when interest rates have climbed.

That’s it for today, folks. Check back next week as I begin to unveil my list of CDs to watch in 2012.